“A potent mix of external factors combined with the public deficit spending-induced surge in the country’s import bill is likely to push the Philippine peso to a more competitive level against the US dollar,” BPI said in a note to clients authored by lead economist Emilio S. Neri Jr., economist Nicholas Antonio T. Mapa and research officer Robbin Ivory P. Brillantes.

The peso’s depreciation to the 50-peso level “by year end until next year” meant the new administration needed to keep a dollar buffer to fund its aggressive infrastructure buildup, the economists said.

BPI also took note of a possible Fed policy shift of gradually increasing rates to support the US economy and the dollar.

Last week, a statement from the transition team of incoming Finance Secretary Carlos G. Dominguez said part of the proposed 10-point socioeconomic agenda of President-elect Rodrigo Duterte included “accelerating annual infrastructure spending to account for 5 percent of the gross domestic product (GDP), with public-private partnerships playing a key role.”

Incoming Budget Secretary Benjamin E. Diokno had said the annual budgets of the Duterte administration would prioritize higher public expenditures on vital infrastructure, equivalent to about 7 percent of GDP, noting that “the economy is deficient in all types of infrastructure—highways and bridges, ports and airports.”

“There will be increased demand for the US dollar by the next administration for infrastructure spending and will likely have preference for domestic borrowing to fund deficits (which means no US-dollar financing flows for government, less of US dollars),” the economists said.

“Our estimates are about $145 billion will be needed in the next six years to fund this [infra program], assuming that three-fourths of the spending are from imported equipment and materials for construction,” BPI added.

In a text message last week, National Treasurer Roberto B. Tan said he already briefed Dominguez on the country’s borrowing plan for the rest of the year as well as the reform initiatives being pursued by the Bureau of the Treasury. Tan had said domestic sources would likely still account for the bulk of borrowings in the near term.

This year, domestic borrowing had been programmed to hit 84.5 per cent of the total.

“Incoming President Duterte’s aggressive infrastructure spending plan will definitely invoke a sharp increase in importation of capital machinery, which would lead a bump up in dollar demand, also causing the peso to weaken. Traditional sources of dollar liquidity may remain, such as remittances flows and business process outsourcing receipts, but these may not be enough to compensate for the surge in importations,” the BPI economists said.